By Stuart Ramsden Head of Commercial at trade credit insurer Atradius
A decade ago, the worst recession on record chalked up a catalogue of victims. Businesses large and small, across all sectors were affected, even seemingly goliath firms from Woolworths to General Motors fell victim to the economic climate. Nobody was immune and the number of insolvent firms rocketed.
While the recession is behind us, it leaves a long tail and news of insolvency is far from over. Insolvency levels in the UK were up by 2% last year and, in the first half of 2018, we’ve already seen the equivalent of 40 failures a day. Looking forward, the picture looks no less challenging with the latest Insolvency Forecast from Atradius projecting insolvencies rising another 6% in the UK this year and a further 3% in 2019.
Compared to the rest of the world, it seems the UK is performing worse than most. Globally, insolvency rates are forecast to drop by 4.6% this year thanks to a broad-based upswing in global growth of 3.1%, the fastest expansion since 2011. Whereas UK economic growth is expected to ease to 1.3% in 2018 and 1.4% in 2019.
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The UK has seen business and consumer confidence knocked, while business investment has declined, translating to a loss of momentum in the economy. Meanwhile, higher inflation and weak wage growth has also weighed on private consumption with personal bankruptcies reaching a six-year high.
The backdrop of Brexit appears to lie at the heart of the UK’s insolvency issues with the continuing uncertainty taking a toll. Uncertainty has been the prevailing constant ever since the withdrawal decision was made and regrettably does not enable solid economic foundations. The lack of clarity around what Brexit will look like, and even whether a deal will be struck at all, has been a catalyst for uncertainty which is already more than two years in the making – and still counting.
Even globally, a question mark hangs over the future outlook. While global insolvency levels are projected to fall again in 2019, the rate of decline is slowing. As global growth loses momentum, it warrants a more cautious outlook for 2019 with GDP forecast to ease to 2.9% and, with it, a smaller drop in insolvencies of 1.2%.
All things considered, the conditions for international trade may not appear inviting but no business can afford to stand still and ‘wait and see’ may be too late for the bottom line. Opportunity for trade is there and your business could benefit hugely, but the message is to know your customer. A scrupulous approach to risk management must be at the forefront of the agenda when it comes to trade – whether trading in new markets with new businesses or shipping to existing customers in established relationships. Action is essential to ensure your business is robust enough to survive and thrive in the years ahead – and getting paid by the customers you deal with is obviously critical to your business’s future.
So when is the right time to look seriously at risk management? It’s certainly not when it comes to signing contracts or preparing to ship your first order. In fact, it should be right at the very outset. The key to future success is research, making sure you develop a comprehensive understanding of your customer and the wider market. In today’s climate, understanding the political and economic issues that might impact your deal is also crucial, as well as future proofing against the potential impact on the way you do business.
With the groundwork complete you will still need to be ready to spot any red flags in the transaction, for example is a late payment a genuine oversight or does it signal a potential non-payment or impending insolvency. In a climate where we are seeing even large companies fail, it is more important than ever to remain alert. Accessing good quality information is crucial and this above all is where credit management solutions can help.
Advice, business intelligence tools and payment protection products are widely available to support your business at every step. Trade credit insurance is one of the avenues open to businesses and provides credit management solutions to support all aspects of your growing portfolio. Payment protection is central to the offering, but in reality is just one aspect of trade credit insurance cover and our insured customers really value the wider benefits that their policy brings.
Trade Credit insurance is more than simple protection against loss it is an enabler for business, with policyholders not only protecting their businesses, but also seeing them grow. As the trading environment continues to present challenges the ability to access reliable business intelligence and up to date market analysis to enable quick decisions provides a competitive edge.
We have noticed that one ‘positive’ outcome in the wake of growing insolvencies is an enhanced awareness of risk management across all sectors. Atradius has seen new business enquiries rise by almost a third year-on-year as businesses strive to equip themselves with a robust strategy and to protect their balance sheet from shock.
Trade, by its very nature involves an element of risk and new and changing times bring new and changing risks – something we’ve been managing at Atradius for nearly a century. There are few companies that trade successfully without ever facing a bad debt, and even the most experienced credit manager can be caught out by an unforeseen loss – it’s how they respond that makes the difference and where our experience can truly add value.
The world has moved on from the dark days of the global recession, but the challenges keep coming and insolvency levels continue to focus our attention on what the future holds. Taking proactive steps to protect your business is no longer a nice to have it’s essential to survival.